The Housing Bubble

The Associated Press reports on California. “Nowhere in the country has the bust arrived more abruptly. Santa Clara County, home to Silicon Valley, saw bankruptcies soar 59 percent in the past 12 months, and projections are that they’re still climbing. Almost every seat in the bankruptcy courtroom is full. Joel Gonzalez, who used to make $100,000 a year installing hardwood floors, earned ‘about 400 bucks’ in March doing odd jobs. His life began falling apart in the fall when his boss, distraught about his failing business, committed suicide. Suddenly out of work, Gonzalez saw the adjustable payments on his $360,000 home loan increase from $2,400 to $3,200. Two months later his savings ran out and he found himself talking to a bankruptcy attorney.”

“‘This is culture shock for me,’ he said, tugging at his dress shirt outside the federal courthouse. ‘But after my boss’ death, I’m trying to keep it in perspective. I have a money problem, and I’ll get through it.’”

“Foreclosures have kept pace with bankruptcy filings in this region, but they’re far less obvious. In a new townhouse complex just a few miles from Intel Corp.’s Santa Clara headquarters, close to 10 percent of the units are on the market as foreclosure sales. But wander down the dreamy streets — Inspiration Place, Meditation Place, Fascination Place — and you would never know. ‘They don’t hang out signs because they want to be discreet,’ says Robert Lei, who holds a master’s degree in semiconductor device physics but now works as a specialist in foreclosure sales. ‘They don’t want so many people to see so many ‘for sale’ signs and get scared away, like there’s something wrong here.’”

“Resident Jeff Nelson, 27, a firefighter, said he and his wife, a teacher, would like to move their growing family into one of many low priced single family homes now on the market, but they’re stuck in this complex, he said. The numbers just don’t add up: They bought their unit three years ago for $527,000, they owe $500,000 and his foreclosed neighbors are selling their places for less than $450,000.”

“‘We thought owning our own place would get us somewhere,’ he said. ‘But now we’ve got to stay. It’s either stay, foreclose, or short sell.’”

The Record Searchlight. “The herky-jerky nature of Shasta County’s housing market continued in April. DataQuick Information Systems reported that 131 new and used homes were sold last month, an 8.4 percent dip from March and 20 percent drop from April 2008. It was the lowest April for sales in the 15 years DataQuick has tracked Shasta County. Last month’s lag in sales happened as the median price shot up 18.6 percent from March to $210,000.”

“‘A lot of times when you see prices whipsaw back and forth, some experts say that is a sign that the market is near bottom,’ Bill Parsons of Parsons Realty in Redding said.”

“April saw an uptick in pending sales, a trend that continued into mid-May, said Brad Garbutt of Real Estate Professionals GMAC in Redding. But with lending requirements still tight, it’s not uncommon for deals to fall apart, or for escrows drag on. ‘I see anywhere from four to five deals fall out of escrow a day. I think most of the reason is buyers are not able to get the loan approved,’ Garbutt said.”

The Sacramento Bee. “The California Public Employees’ Retirement System would lose its entire $922 million investment in a Southern California land deal under a plan that could be approved by a bankruptcy court judge Monday. The ruling would wrap up one of the pension fund’s worst real estate ventures. CalPERS’ housing portfolio, once estimated to be worth $9 billion, was reported to be $6 billion last fall.”

“CalPERS bought a majority stake in the 20,000-home Newhall Ranch project in January 2007, hoping for long-term returns on a major undeveloped tract in Los Angeles County. But the project’s developer, LandSource Communities Development LLC, faltered as the real estate market crumbled. It filed for Chapter 11 bankruptcy protection in June.”

“CalPERS considered buying back into the project through the bankruptcy process. The new stake would have been no greater than $55 million, court records showed. That deal is now off, CalPERS spokeswoman Pat Macht said Friday. ‘We conducted a thorough review of the proposal and decided not to participate because it doesn’t fit well with the strategic direction we’re taking in real estate,’ she said.”

From Maktoob Business. “Emaar Properties lost a bid to buy its way out of trouble with its failed U.S. home-building business and is in talks with creditors aimed at heading off liquidation of WL Homes, news agency Dow Jones reported on Friday. Dow Jones said Judge Brendan Shannon acceded to creditor demands that he convert WL Homes’ Chapter 11 bankruptcy case into one under Chapter 7, but he held up implementation of the order while the company and creditors try to work out their differences.”

“Conversion would put WL Homes, which operates under John Laing Homes, in the hands of a trustee, who would try to get a better price for the operation than Emaar was offering. It would mean the proposed Chapter 11 auction of the company that was once one of the largest private home builders in the U.S. is off, and the bankruptcy financing Emaar was offering is no longer needed.”

“Shannon did not fault Emaar or WL Homes over the auction proposal but said the ‘exceedingly difficult circumstances’ of WL Homes case, where big money was riding on the housing bubble, produced bad Chapter 11 case economics. Bank lenders were owed more than $350 million when WL Homes filed for bankruptcy in February. The company estimates it is worth $7 million in a liquidation.”

“Conversion to the shoestring liquidation form of bankruptcy will make little practical difference to the fate of WL Homes, the judge noted. ‘We are looking at something that is functionally the same whether it’s under Chapter 7 or under Chapter 11, we’re looking at a sale,’ Shannon said. ‘Nobody’s talking about reorganising or restructuring or rebuilding this business.’”

The Tribune. “Executives of a Ventura real estate development company that was once one of the largest homebuilders in San Luis Obispo County have failed to appear for several hearings scheduled in U.S. Bankruptcy Court in Santa Barbara, the Ventura County Star has reported. Creditors of R.W. Hertel & Sons forced the developer into an involuntary Chapter 7 bankruptcy in January.”

“Creditors can petition for an involuntary bankruptcy in order to force the liquidation of a debtor’s assets to pay their obligations. ‘This was an involuntary case, and in those cases it’s hard to get debtors to cooperate,’ Sandra K. McBeth, a trustee assigned by the court to oversee the company’s assets, told the Star.”

The Recordnet. “California home builders got busy in April, with sales bolstered by a $10,000 state income tax credit, and took out 2,265 permits for single-family homes, a jump of 21 percent from March. The impact was bigger in San Joaquin County, where the 77 single-family permits issued in April was well more than twice the 34 permits builders obtained in March.”

“Florsheim Homes had eight homes for sale when the tax program began in March, and they all sold within three weeks. Now the company is back to building homes on order as well as a few speculative homes, betting there will be interested buyers when they are done. ‘You need to have some homes available for a quick close in this market, but very few,’ said Joe Anfuso, president of Florsheim Homes in Stockton.”

“That caution is justified as state officials report the popular tax credit program - limited to $100 million or the first 10,000 qualified applicants - is nearly fully subscribed. Not surprisingly, industry officials are lobbying to see the tax credit program extended. Given the multibillion-dollar state budget deficit, it’s going to be a tough sell, admitted Tim Coyle, senior vice president of the California Building Industry Association.”

“But, he contended, in the long run, the credit would boost state tax revenues as it encourages economic activity. Coyle noted a recent study found that building and selling a new home generates as much as $16,000 in revenues to the state. If you’re handing out a $10,000 tax credit and getting back $16,000, that’s a pretty good deal, he said. ‘Economic activity - that is what this effort is all about; jobs, creating jobs.’”

“John Beckman, executive officer of the Building Industry Association of the Delta, agreed. ‘The tax credit has worked,’ he said. ‘We need to continue this to help the construction industry to recover and bring the whole economy back up with it.’”

The San Gabriel Valley News. “Los Angeles County eked out its second median home price gain in April after more than a year and a half of declines, the California Association of Realtors reported Thursday. The county’s median price for an existing, single-family detached home rose 1.9 percent to $300,690 in April. But that was still 31 percent below the year-ago price of $435,980.”

“Chris Vigil, a broker/associate in Whittier, said the Southland housing market is picking up steam. ‘The consensus among agents in my office is that this feels like a sellers’ market,’ he said. ‘Every house is getting multiple offers. You’re often competing with up to 10 offers on a house.’”

“Bill Velto, a broker/manager for Tarbell Realtors in Upland, said scores of potential buyers are lined up to buy bank-owned properties. In Fontana, for example, foreclosures and short sales account for about 80 percent of the transactions his office handles. ‘We’re getting 10 to 15 offers on every property,’ he said. ‘I think the banks are being wise by not dumping a lot of these on the market because that would hurt them by driving down prices on other properties.’”

“The median home price in most San Gabriel Valley cities is far below what it was a year ago. Altadena showed the biggest year-over-year decline - a 42.2 percent drop down to $350,000, followed by Baldwin Park, which saw its median price fall 41.7 percent to $210,000.”

“San Bernardino County weathered even more severe extremes. The city of San Bernardino saw its median price fall 61.6 percent to $73,000, while Highland posted a 63.1 percent drop, bringing its median price to $120,000. ‘I don’t think we’ll be out of this recession anytime soon,’ Vigil said. ‘There are a lot more loans that will be adjusting over the next year.’”

The Burbank Leader. “Struggling homeowners sat alongside cash-strapped home shoppers and other attendees during a set of workshops Saturday aimed at helping residents through their financial crises. The workshops were organized by Assemblyman Paul Krekorian and aimed at residents within the 43rd Assembly District.”

“Severe losses led Burbank resident Calvin Jung to the event. Jung was forced to close his chiropractic and massage center in downtown Los Angeles after business had slowed to a halt during the recession. He lost close to $90,000 over two years, he said.”

“He said he hoped to get help modifying his home loan, which he wasn’t currently having trouble paying but was expecting to. ‘It’s going to get tough because my business is gone, I don’t have a job, and the [stock] market took 90% of my money in September,’ Jung said.”

The North County Times. “As you drive down Cottonwood Canyon Road, the subdivisions appear to represent one of Southern California’s premier communities: palm trees, emerald grass and 8-foot-high walls adorned with meticulously maintained shrubbery. And then the road ends. From perfectly paved to bumpy dirt.”

“This is Lake Elsinore. It has been afflicted by foreclosures more than any other community in the region. Banks have seized 1 out of every 5 houses since January 2007, according to data from ForeclosureRadar and the Riverside County assessor’s office.”

“And more foreclosures could be poised to enter the pipeline, according to a report by First American CoreLogic. It showed that in one of Lake Elsinore’s ZIP codes, 92532, 3 out of every 4 mortgages were ‘under water.’”

“The area has blazed the city’s trail to becoming the region’s foreclosure capital, the result of an explosion in construction of new homes that were sold to borrowers who could not afford the payments. From 2000 to 2008, the number of households in 92532 tripled from 1,420 to 4,648, according to census and county data.”

“Construction in the master-planned communities along Cottonwood Canyon has come to a halt as builders struggle to compete with banks selling foreclosures for half the peak price set in 2005. That has left bare foundations with protruding pipes next to brand-new homes. Portable toilets next to half-million-dollar homes.”

“It doesn’t bother Roy Meerkamper, who purchased a home a year ago in the quasi-finished development —- the empty lots offer plenty of exercise space for his three golden retrievers. ‘I just try to not look at the housing prices,’ he said.”

“Down the road, bank seizures have ripped through an area known as Tuscany Hills. In that subdivision, Dan Baldwin tired of seeing brown lawns take over. It wasn’t going to happen on his corner. After two homeowners were evicted, Baldwin grabbed his hose, borrowed a neighbor’s so that it extended down the block, and he watered the lawns.”

“‘We’ve seen a lot of yards go bad and trees go down,’ said Nancy Baldwin, Dan’s wife. ‘We figured if someone comes in, they’re more likely to buy with a healthy yard.’”

“And Lake Elsinore’s housing crisis could deepen if things don’t change for borrowers such as Sean Malebranche. He purchased a Tuscany Hills home in 2000. Malebranche said he has lost hours at his job as a longshoreman in Long Beach. ‘It’s extremely stressful,’ he said. ‘You work all your life to have something, and then to see it go down the drain —- it’s been difficult.’”

The Inland Newspapers. “It seems that real-estate busts don’t phase Doug Duncan. Fannie Mae’s vice president and chief economist spoke at the Real Estate Research Council of Southern California’s quarterly luncheon on Thursday at Cal Poly Pomona, giving a humorous yet serious view of the local and national housing markets.”

“‘There’s a presumption today that this is all new, but it’s not,’ Duncan said about the reeling housing market coupled with a battered economy. ‘This has happened cyclically time and time again.’”

“‘And we tend to think there’s a silver bullet that’s going to fix it all, but that’s not the case,’ he said, referring to state and federal initiatives to keep troubled homeowners from going into foreclosure. Duncan said he’s skeptical the government can ‘retool’ the financial system to eliminate the financial risk collectively taken by Wall Street and borrowers during the housing boom.”

“Even during the housing boom years, when credit was so free that rising economic growth projections sounded more logical than fairy tale, the state was running an unsustainable budget, he said.”

“Skyrocketing real-estate values were being used as a basis to predict future growth. Since those projections took a nose dive, California is still running at ‘unsustainable levels,’ as Duncan puts it. ‘We probably have further to go than we think,’ he said about California’s economy and real-estate markets. ‘Many losses have already been taken but not all of them. We’re not out of the woods yet.’”

“Because of a wave of adjustable mortgages lent to borrowers immediately before and after the housing bubble’s peak, 250,000 more households in California will see their monthly payments rise, most of them between now and 2014, Duncan said. This isn’t the only problem. The Mortgage Bankers Association said on Thursday that prime fixed-rate mortgages, which have been the conventional loans historically used for decades, ‘now represent the largest share of new foreclosures.’”

“It’ll be a bear for the state’s economy to withstand. ‘Is the pace of economic decline slowing? Probably,’ Duncan said. ‘But I don’t see anything close to economic growth any time soon.’”